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Local firms in panic over investor’s financial problems

Arif Naqvi
Mr Arif Naqvi, CEO of Dubai-based private equity firm Abraaj, at a past event. The firm is in trouble with some of its funders over investment money, putting in jeopardy a takeover deal that would have injected cash in the firm. PHOTO | COURTESY 

Emerging reports that US investment manager Colony Capital’s deal to take control of four funds belonging to Dubai-based private equity firm, Abraaj, is encountering investor resistance has left Kenyan firms where the fund has recently pumped billions of shillings in a cloud of uncertainty.

The deal by the US firm to take over Abraaj’s funds announced last month was billed by Abraaj as a rescue plan. But several news reports now predict that the deal could fall through because the embattled Abraaj has not provided some of the information required by Colony.

Abraaj Group had told investors and creditors it needed to sell four funds to Colony by July 1 to survive. Wall Street Journal and Reuters news agency have since both reported that Colony’s proposed deal in its original form could be put aside because of resistance from some investors.

“The issue is how the deal would be structured. Colony doesn’t want to do anything that does not have the full approval of the limited partners,” said a Reuters’ news report. Abraaj filed for provisional liquidation in the Cayman Islands last month.

Kenyan firms where Abraaj has acquired a stake will be following keenly to see what comes out of the takeover deal. The fund has invested billions of shillings in Kenyan companies, signalling its strong bet on the Kenya economy’s future growth.

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Abraaj Holdings Director of Communications Mitali Atal recently said the current challenges it is facing would not interfere with the operations of Java which it owns in Kenya.

“The provisional liquidation for Abraaj Holdings is a court supervised restructuring process which will ensure the company can move forward with an orderly restructuring plan,” she said.

“It will have absolutely no impact on the day to day management of the funds and the underlying portfolio companies.”

The firm with a $10 billion (Sh1 trillion) portfolio under management across three continents in the Middle East, South Asia and Africa has in recent years made significant investments in Kenya including in four hospital chains, a milk processor and a restaurant chain.

Colony’s offer last month to buy the fund management business that runs Abraaj’s Latin America, Sub Saharan Africa, North Africa and Turkey funds followed months of turmoil caused by a dispute between Abraaj and four investors over the use of their money in a $1 billion (about Sh103 billion) healthcare fund including in Kenya.

Abraaj’s fall from grace began this year when it emerged that some of the 24 investors in Abraaj’s $1 billion healthcare fund hired investigators to find out what happened to some of the money invested in the vehicle. When the investigation became public, Abraaj maintained it was still committed to investing in Kenya.

In 2017, the Competition Authority of Kenya (CAK) approved Abraaj Group’s acquisition of a 56.2 per cent stake in Kenyan hospital chain Avenue Group, making it the latest of the PE fund’s string of local acquisitions.

In July last year, Washington-based Emerging Capital Partners (ECP), which owned 90 per cent of Kenyan restaurant chain Java, announced it was selling its entire stake to Abraaj in a takeover plan that also forced Java Coffee House’s founder and chairman Kevin Ashley to part with his 10 per cent stake.

Abraaj at the time said it could not comment on the financial details of the transaction but people familiar with the deal then said it was valued at Sh13 billion. Abraaj has injected Sh320 billion in 80 transactions across Africa. It is yet to disclose the value of its Kenya portfolio.

The group also owns 10 per cent of the Kenyatta family’s Brookside Dairies. Its independently run Abraaj Growth Markets Health Fund (AGHF), a $1 billion (about Sh103 billion) health fund focused on Africa, India, and Pakistan, has also been snapping up Kenyan hospitals firming its grip in the sector.

Abraaj’s health fund Kenyan portfolio is made up of 18 clinics and 10 hospitals that provide over 700 patient beds.

The AGHF is focused on Africa, India, and Pakistan, and has been snapping up Kenyan hospital chains firming its grip in the sector. The Abraaj Growth Markets Health Fund deployed capital from investors including the Bill & Melinda Gates Foundation, the World Bank’s International Finance Corporation, the UK’s CDC Group and Proparco Group of France.

These four out of a total 24 investors requested an audit of the health fund and engaged Ankura Consulting to find out what had happened to some of the invested money.

Abraaj denies any wrongdoing but the dispute has weighed heavily on what is the largest private equity firm in the Middle East and Africa.

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